Yesterday the Department of Commerce’s Bureau of Industry and Security (BIS) announced that it would issue extensive sanctions against Russia. Expected to be published in the Federal Register on March 3, 2022, BIS is amending the Export Administration Regulations (EAR) to add new license requirements and licensing polices in order to restrict Russia’s access to “items that it needs to project power and fulfill its strategic ambitions.” The primary targets of these sanctions are the defense, aerospace, and maritime sectors. The unpublished version of these new regulations can be found here. Additional sanctions issued by the Treasury Department’s Office of Foreign Assets Control (OFAC) restricting Russia’s access to the global financial system are discussed here.
The BIS sanctions include the following:
New Commerce Control List (CCL)-based license requirements for Russia
- A license is required for the export, reexport, or transfer (in-country) to or within Russia of any item subject to the EAR and specified in an Export Control Classification Number (ECCN) in Categories 3, 4, 5, 6, 7, 8, or 9 of the CCL, excluding deemed exports and deemed reexports.
- These ECCNs include microelectronics, telecommunications items, sensors, navigation equipment, avionics, marine equipment, and aircraft components, and includes many items that did not previously require a license to Russia on the basis of their CCL classification.
Review policy of denial for Russia license applications
- BIS is establishing a policy of denial for applications for the export, reexport, and (in-country) transfer of items subject to licensing requirements for Russia, with limited exceptions.
- There will be case-by-case review of license applications relating to safety of flight, maritime safety, humanitarian needs, government space cooperation, civil telecommunications infrastructure, government-to-government activities, and to support limited operations of U.S. and partner country companies in Russia.
Expansion of ‘military end use’ and ‘military end user’
- Restrictions on Russian ‘military end uses’ and ‘military end users’ will apply to all items subject to the EAR, instead of to the narrower subset of items identified in Supplement No. 2 to part 744 of the BIS regulations.
- The only exceptions are for food or medicine designated as EAR99, or ECCN 5A992.c and 5D992.c unless for Russian “government end users” and Russian state-owned enterprises (SOEs).
Russia Foreign Direct Product Rule (Russia FDP rule)
- The Russia FDP rule establishes a license requirement for foreign-produced items that are the direct product of certain U.S.-origin software or technology and destined for Russia. Specifically, a license is required for foreign-produced items when it is known that the item is destined for Russia or will be incorporated into or used in the production or development of any part, component, or equipment produced in or destined to Russia. This includes foreign-produced products that are the direct product of certain U.S.-origin software or technology subject to the EAR, or items that are produced by a complete plant (or a major component of a plant) that is itself the direct product of such U.S.-origin technology or software. .
- Does not apply to foreign-produced items that would be designated as EAR99.
- Partner countries that are adopting or have expressed intent to adopt substantially similar measures are not or will not be subject to the Russia FDP rule and Russia-MEU FDP rule (discussed below). This includes all 27 EU member states, Australia, Canada, Japan, and the United Kingdom.
Russian ‘military end users’ Foreign Direct Product Rule (Russia-MEU FDP rule)
- The Russia-MEU FDP rule establishes licensing requirements for the same products covered by the Russia FDP rule, but expands those licensing requirements to include EAR99 items.
- These licensing requirements apply to entities with a Footnote 3 designation on the Entity List who are parties to a transaction, or if there is knowledge that the item will be incorporated into or used in the production or development of any part, component, or equipment produced, purchased, or ordered by any entity with a Footnote 3 designation.
- The Footnote 3 designation indicates that the Russia-MEU FDP rule licensing requirements apply to the listed party. This is in addition to the licensing requirements for all items subject to the EAR except for food or medicine designated as EAR99.
Transfer of Russian entities from the Military End-User (MEU) List to the Entity List
- BIS is moving forty-five Russian entities from the MEU List to the Entity List, and adding two new entities to the Entity List. Each of these forty-seven entities has a Footnote 3 designation, indicating that the Russia MEU-FDP rule applies to that entity.
- Licenses are required to export, reexport, or transfer (in-country) all items subject to the EAR to these entities, subject to a license review policy of denial.
Comprehensive export restrictions for the Covered Regions of Ukraine and Crimea
- Consistent with Executive Order 14065 prohibiting certain transactions with the so-called Donetsk People’s Republic (DNR) and Luhansk People’s Republic (LNR) regions of Ukraine (collectively, the Covered Regions), BIS is imposing a license requirement, subject to a policy of denial, for the export and reexport to, and the transfer within, the Covered Regions of Ukraine. This license requirement applies to all items subject to the EAR, other than food and medicine designated as EAR99 and certain software for Internet-based personal communications.
- The license requirements and available license exceptions for the Crimea region of Ukraine have not changed; however, the licensing policy has changed from a presumption of denial to a policy of denial.
Additional updates to the EAR
- BIS has updated the Country Group designation for Russia to Country Group D:5 to reflect its identification by the Department of State as a country subject to a U.S. arms embargo.
- License applications for exports, reexports or transfers authorized under OFAC General Licenses will be reviewed on a case-by-case basis.
- The amendments significantly restrict the use of EAR license exceptions for Russia exports, reexports, and transfers (in-country).
These sanctions are aimed at Russia’s key industrial sectors, and have significant implications on the export requirements for dual-use items and to military end users. The broad scope of items covered can create challenges for companies doing business in Russia or the Covered Regions. In order to ensure compliance with the new sanctions, companies should consider the following:
- The extent to which the company engages in business with Russia and/or the Covered Regions;
- Whether the company exports or reexports U.S.-origin products to Russia and/or the Covered Regions and, if so, the ECCNs of these products;
- Whether the company produces, exports, or reexports items that are the foreign direct product of certain U.S.-origin software or technology subject to the EAR; and
- Whether the company engages in any business with entities listed on the Entity List.
U.S. sanctions and export controls with respect to Russia/Ukraine are expected to change in the coming days and weeks. Contact us if you have questions about these developments or their potential impact on your business.